Proposed Wellness Rules Provide Updates and Clarifications

Responsible federal agencies have recently issued proposed amendment to the existing regulations governing wellness programs.  As expected, the proposed amendments increase the maximum permissible reward (or absence of surcharge) under health-contingent wellness programs from 20% to 30% of the cost of coverage and increase the maximum permissible reward (or absence of surcharge) to 50% for health-contingent wellness programs that prevent or reduce tobacco use.

The proposed amendments clarify that a reasonable alternative standard developed by a medical professional who is not independent of the employer ceases to be reasonable if it conflicts with the recommendations of an individual’s personal physician and also clarify that it is not reasonable for an employer to seek verification of a health condition where the individual’s medical condition is known or patently obvious.

The proposed amendments also provide a safe harbor notice with regard to advertising the availability of an alternative standard in all plan materials describing the specific terms of a health-contingent wellness program.  The agencies also utilize the issuance of the proposed amendments to encourage employers to utilize a variety of reward systems and alternative standards.

The proposed regulations indicate that the work of the agencies is not complete.  While acknowledging complexities associated with apportioning rewards among eligible family members and with determining compliance with the size of a reward that is variable in nature, the proposed regulations do not provide any guidance on such issues.

The release of these regulations has prompted insurance industry representatives to advocate granting tax relief to employees who receive the benefits of, or expend associated costs in conjunction with participating in certain wellness programs.  Given the fiscal issues that the federal government is grappling with, these calls for tax relief are likely to fall upon deaf ears.